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Firm size and corporate financial‐leverage choice in a developing economy

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  • Abel Ebel Ezeoha

Abstract

Purpose - The purpose of this paper is to investigate, from an undeveloped market perspective, the nature and significance of firm size as a determinant of corporate financial leverage. Design/methodology/approach - A panel data fixed‐effects regression model is used to estimate the relationship between financial leverage and firm size, while controlling also for the effects of other acclaimed determinants like asset tangibility, profitability and firm age. The dataset used covers 71 firms quoted in the Nigerian stock markets over a 17‐year period (1990‐2006). Findings - The study reveals that as much as 91.4 percent of the total finances of Nigerian‐quoted firms is of short‐term liabilities, with just 8.6 percent constituting long‐term liabilities. It finds that firm size is negatively and significantly related to financial leverage. Controlling for some other determinants, the arising results tend to confirm an over‐bearing influence of the pecking order theory in the financing patterns of Nigerian‐quoted firms – by revealing that the relationship between profitability and financial leverage is highly significant and negative; and that firm‐age is positively and significantly related to financial leverage. Originality/value - Using data from a country with undeveloped and inefficient financial markets, this paper provides an important insight on the international debate on the effects of size on corporate decisions.

Suggested Citation

  • Abel Ebel Ezeoha, 2008. "Firm size and corporate financial‐leverage choice in a developing economy," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 9(4), pages 351-364, August.
    • Handle: RePEc:eme:jrfpps:15265940810895016
    DOI: 10.1108/15265940810895016
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    Citations

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    Cited by:

    1. James Sunday Kehinde & Sehilat Abike Bolarinwa & Olukayode Ezekiel Ibironke, 2022. "Firm Size, Financial Leverage and Firm Performance: Evidence from Firms Listed in the Non-Financial Sectors of the Nigeria Stock Exchange," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(12), pages 188-195, December.
    2. Sunday Nosa UGBOGBO (Ph.D) & Sunday Nosa UGBOGBO (Ph.D), 2023. "Capital Structure and Corporate Financial Distress of Quoted Non-Financial Firms in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(6), pages 1302-1314, June.
    3. Hussain Rana Yassir & Xuezhou Wen & Hussain Haroon & Ahmad Ilyas & Irshad Hira & Malik Muhammad Yasir Hayat, 2024. "Firm Attributes and Government External Debt as Determinants of Corporate Short Debt Maturity in a Post-CPEC Scenario," Zagreb International Review of Economics and Business, Sciendo, vol. 27(1), pages 137-154.

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